The holidays should be a quiet investing time. Volumes in markets are low and prices can be volatile. These past holidays just seemed to have been a little busier than I expected with markets offering interesting prices that a few pending orders were set at.
Bought
EuroStoxx50 Call Option Dec 24 Strike 3500: EuroStoxx50 is an index of the top 50 European companies. Ever since the Global Financial Crisis, European stocks have lagged behind US stocks. The first chart shows the Dow Jones Industrial Index vs EuroStoxx50 since 2009.
One has to believe (well I do anyway) that this gap will close. I have been investing steadily in Europe more aggressively than I have in the United States over the last 12 to 18 months. My view is there is very little difference between the top 50 stocks in Europe and the top 50 stocks in the US. Yes, the European Union was slower in taking action to fix their banks and insurance companies. So those are different. But General Electric and Siemens sell mostly the same stuff to global markets. Heineken and Anheuser Busch sell beer to global markets. And Royal Dutch Shell and Exxon Mobil drill and sell oil all over the world.
Now the Buy:Sell chart tells an interesting story.
This chart is Buy US stocks (represented by the ETF SPY which tracks the top 500 US stocks) and Sell European stocks represented by the ETF VGK which tracks the top European stocks). Both are listed in USD so there is no currency impact. In the first 2 years since 2012 there was not a lot of difference. Since then the US has solidly outperformed Europe. It seems that the dragging of the feet, plus crises in Greece and Ireland and Portugal and Spain, has extracted a price.
Regular readers of these posts will know I like to invest when I see confirmation of a change in direction. We cannot say that is the case here. Why then did I buy those 2024 Call Options? There is a clue here - they are 2024 options. I have between now and December 2024 to be right = 8 whole years in which to be right. Strike price is 3500. Break even is 3901. In April 2016 price reached 3822 - not hard to see it go 80 past that in one year from now. 100% profit is 4302. Price passed through 4302 on the way down from the top of the market in December 2007. Now that was 9 years ago. We do know though that the US market passed its all time highs late last month. Europe could do the same.
Sold
Technology Select Sector SPDR ETF (XLK) Call Jan 17 Strike 45. Profit taking for a 72% profit since Dec 2014. I continue to hold long positions in XLK in other portfolios.
Japanese Government Bonds (JGBs) 10 Year Mar 17 futures. Adding to my short position after price has risen. I wrote in #4 in the series that this was the plan
This is a first step to get back short - I sold one contract. If yield reverses and falls, I will sell another contract.
YOOX Net-a-Porter (YNAP.PA): Yoox is an Italian Internet mail order retailer of men's and women's multibrand clothing and accessories. You may be wondering where I get my trade ideas from. For this one, I watched an interview with the CEO on Bloomberg TV. He said that, despite the problems in some of their key markets, the business was growing annually at 25%. The chart tells a different story - my guess is the market was wrong. It is always nice to pick the bottom of a turnaround and bank 23% profit since July 2016. I still have a holding in this in one portfolio.
USDJPY Futures Dec 30, 2016. There was one trade I had to do before December 30. In #2 of the series I wrote about the hedging trade I made for the Japanese Yen (JPY) to cover my Japanese stock portfolio. I had bought a one month futures contract expiring on December 30. I needed to close this out and decide whether to buy another one.
I sold the contract on December 28 for a 5.2% profit in one month. In the same time the Nikkei 225 rose from 18,356 to 19,401 - a rise of 5.6%.
The green lines show entry and exit prices and the start and end of the arrow are the start and end dates. It is nice to see a trade idea come together - the hedge protected most of my 5.6% profit. Now I have a few thousand dollars up the sleeve to fund further hedging costs. I used some of that to fund another one month future. I will be tracking the stock performance carefully month to month against a view of the currency. I will not be surprised to see a period of consolidation and a retest of 120 level after that. That is what the hedge will cover.
Expiring Options
Libor 3 month Fed Funds futures (L Z) Dec 16 98.5 Puts - not enough time to win on this trade on rising interest rates. I was right on the direction and UK interest rates have risen harder and further than other markets - but not enough time for my trade. I had thought that 2 years was long enough - sadly not
Westpac Banking Corp (WBC.AX) Dec 16 Put 31.78: This was a view on Australian Property market getting overheated and dragging banks down with it. The cuts in interest rates by the Reserve Bank has really put a fire in the property market and kept it running strongly. There is a strong lesson in this trade.
For a long time during 2016, Westpac share price has been below the strike price. When that chart turned over, I should have taken the profits.
Cryptocurency
Ethereum: I continue to sell ETH to buy STEEM (via Bitcoin)
Currency Trades
Closed out the long WTI Crude Oil trades for a profit. Promptly gave the profits plus a bit back on short EURCAD trades (expecting EUR to continue to drop and CAD to rise with oil prices). Also lost a few trades long GBPJPY (expecting GBP to keep rising against a weakening JPY). The holidays is a tough time to trade currencies - next time I will stay out.
Cautions: This is not financial advice. You need to consider your own financial position and take your own advice before you follow any of my ideas. Some of these ideas are very advanced ideas. I do participate in an investing group - some of the ideas flow from there.
Images: I own the rights to use and edit the Buy Sell image. All other images are created using my various trading and charting platforms. They are all my own work
Trades from December 22 to December 31, 2016
nice
Thank you , very interesting article ! Happy New year ! I wish you health , happiness and good luck in the new year !
Thanks. And the same for you